Bad news all round as shares slide
THERE was no escaping the bad news yesterday as Moody's cut Irish banks to junk, Standard & Poor's cut the American credit outlook to negative and Greek two-year bond yields surged to 20pc as European politicians talked openly about a possible Greek default.
In Dublin, the benchmark ISEQ closed down 51.22 points, or 1.7pc, at 2,898.95 points, after Moody's downgraded the long-term deposit ratings of five Irish banks to junk. Allied Irish slid 6.4pc to 22 cents while Bank of Ireland closed down 1.1pc at 26.4 cents.
Shares in CRH, the biggest component in the index, closed down 4.1pc at €15.49 on concern that the S&P downgrade will finally bring US legislators to their senses and encourage them to stop spending.
Perhaps the markets were listening to Taoiseach Enda Kenny as he launched a charm offensive in the UK to try to persuade investors that Ireland would not default.
Irish bonds performed better than Greece and Portugal yesterday. Credit-default swaps insuring Greek bonds jumped 66 basis points to 1,221, signalling a two-in-three chance of a default within five years, while those for Portugal climbed 18.5 basis points to 616.5, signalling a one-in-three chance.
Things were even worse elsewhere in Europe. National benchmark indexes dropped in all 18 western European markets, with the FTSE 100 Index and Germany's DAX Index slidding 2.1pc and France's CAC 40 Index sinking 2.4pc. About 18 stocks lost for every one that gained in the Stoxx Europe 600.
"It doesn't take much to worry these markets, especially as we have a sovereign-debt crisis that is yet to be resolved in Europe," said Mike Lenhoff, chief strategist at Brewin Dolphin. The US downgrade "is not a welcome development".
US stocks sank the most in a month, oil slid and gold gained after Standard & Poor's cut the American credit outlook to negative. The S&P 500 had tumbled 1.5pc by late morning trade in New York.
"It's truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement," said David Ader, head of government bond strategy at CRT Capital.
In Europe financial stocks took a hammering. Societe Generale fell 3.9pc in Paris, while Italy's UniCredit dropped 4.2pc. Germany's Commerzbank declined 5.1pc. Allianz, Europe's biggest insurer by market capitalisation, tumbled 4.8 pc and Munich Re, the world's biggest reinsurer, sank 2.3pc.
Nestle slid 4.2pc as shareholders lost the right to the latest dividend. Bwin.Party Digital Entertainment surged 30pc after the founders of rival Internet poker companies were indicted in the US for bank fraud and illegal gambling.